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Region’s LCCs morphing into hybrids of premium carriers?
December 1st 2014
Taiwan’s China Airlines may have become the region’s latest full-service carrier to enter the budget sector with Tigerair Taiwan, a joint-venture with Singapore’s Tigerair, but the lone standout in the no-frills subsidiary stakes, Hong Kong’s Cathay Pacific Airways, is standing firm. Read More » It definitely won’t be getting involved with an LCC, says the carrier’s chief operating officer, Rupert Hogg.
Besides, he argued, there are so many different business models, or hybrids, that the tag “low-cost carrier” no longer fits. It’s a view many airline chiefs hold.
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| 'Maybe the only difference between a full service carrier and low-cost carrier is time' |
| Rupert Hogg Chief Operating Officer Cathay Pacific Airways |
Hogg, a member of the airline executive panel at the 58th Association of Asia-Pacific Airlines annual Assembly of Presidents, said Cathay Pacific had analysed the model and asked: is this a long-term profit-making sustainable model and, even if it is, does it suit my environment?
“When we looked at this model and many people cleverer than us have studied it, it seems to me it has developed in Asia very differently to the way it has in Europe and America. The most successful ones in Europe, such as Ryanair and EasyJet, operate standard narrow-body aircraft, basically linking points that weren’t linked into hub systems. They also weren’t flying against full-service airlines. Instead, they were flying single-aisle aircraft against single-aisle aircraft on relatively short stages,” he said.
“Fast forward to what’s happened in this region and to me, it is by and large a bit different. One consultancy pointed out that despite the low-cost phenomenon in the region there are no two international city pairs operated by a low-cost carrier that aren’t already served by a legacy carrier.
“What Cathay believes is happening, and what is already happening in Europe, is LCCs set themselves a ticket price ceiling because they have one product for which the passenger is willing to pay so much. But then they will go onto a full service carrier.
“So, if your cost base starts to inflate and you have to start buying aircraft to replace aircraft, you have salary inflation in your pilot community or whatever it might be. Then you need to find a way of generating more revenue from the same airframe.
“You can see it happening now. You can see people connecting over hubs that have the ability to check in all the way through, including to business class. The current name is hybrid and that looks to us to be pretty similar to what we look like.
“So maybe the only difference between a full service carrier and a low-cost carrier is time. If that’s the case, then ultimately all the capacity they put on and all the frequency they put on will morph into something that looks much more like Cathay Pacific than it does now.
“So, in the face of that, we have no intention really of moderating the growth of our network. We will continue as we are.”
Hogg said that many of the airports where the impact of the huge traffic growth is likely to be felt are already pretty full. “It’s not that the demand is not there, it’s how you are going to accommodate it,” he said.
“Really, we are not convinced that long-term, [the budget model] is the right model for us. We are convinced that if we get our own model right and keep focusing on what customers are prepared to pay, then that’s the best way forward for us,” he said.
